Brendan Williams is
Associate Director and
Lead for Digital Consulting
Research, ALM Intelligence
Helping clients understand and respond
to the threats and opportunities presented by digital disruption in one way
or another is the cornerstone of the
approach of all of the leading providers of digital consulting services. The
digital era has spurred a wave of innovation touching every aspect of our lives.
Nowhere is this more true than in the
area of payment technologies.
Once a relatively simple affair (bits of
colored paper and shiny metal for the small
stuff, little embossed plastic rectangles
for the bigger purchases), consumers and
merchants now face a bewildering and rapidly
proliferating array of payment options.
Startups such as Square are disrupting the
once-staid payment market area by offering
a cheaper, easier alternative to point-of-sale
systems that’s proven particularly attractive
to small businesses, while Apple Pay is
just one of a number of new services that
make use of near-field communication
technology to allow consumers to pay with
their smartphone or smart watch. While
these technologies threaten to do away with
credit and debit cards and their associated
paraphernalia, Bitcoin takes it a step further
and aims to displace the whole system of
government-backed fiat currencies.
Digital consulting clients, especially
financial services industry incumbents,
want to know what the impact of all of this
innovation will be on the payments market,
and what they can do to protect their market
shares and profit margins. Although it’s
impossible to predict precisely how all of this
will play out in the long run, by analyzing
the economic, technological, and behavioral
factors, a few things are becoming clear:
1. The smartphone will become a hub
for a large share of in-person transactions (in
addition to its role as the dominant interface
for ecommerce), displacing the primacy of
the physical credit card and POS systems;
2. There will be significant disruption of
established players in the payments ecosystem, with banks and credit card companies
losing revenues and profits to established
and startup technology companies, although
consumers will be oblivious to much of this
turmoil as it will happen behind the scenes;
3. Credit cards and even paper money and
coins are not going to disappear anytime
soon. The evolution of payment technologies
will follow similar contours observed in the
evolution of other technologies.
Apple Pay (or something similar) will
catch on, and it will grab a significant,
maybe even dominant, slice of the payments
market, but it won’t entirely replace the
credit/debit card, just as the credit/debit card
didn’t entirely replace checks and paper
money, just as checks and paper money
didn’t entirely replace metallic money.
Indeed, the fact that the humble coin is still in
widespread use—a payment technology that
goes back around three millennia—should
provide some perspective on the issue.
Throughout history, technologies and
products which have supposedly been made
obsolete have shown surprising resilience.
Even today, in the age of free, instantaneous
global communication, it is still possible to
send telegrams in many countries. But paper
and metallic money will remain much more
than retro curiosities for a long time to come.
For one, they don’t lose their charge. It
will take some time for the world’s existing
stock of coin and cash-operated parking
meters, toll booths and vending machines
to be entirely replaced. Cash-strapped
municipalities are unlikely to replace parking
meters that work perfectly well simply
because more high-tech alternatives exist).
Unfortunately for the financial services
industry incumbents looking to survive the
current wave of disruptive digital innovation,
the resilience displayed by payment
technologies does not extend to companies.